Tax Burden and Migration: A Political Economy Perspective

NBER Working Paper No. 5850Issued in December 1996NBER Program(s): IFMPE

The extent of taxation and redistribution policy is generally determined at a political-economy equilibrium by a balance between those who gain and those who lose from a more extensive tax-transfer policy. In a stylized model of migration and human capital formation we find, somewhat against conventional wisdom, that low-skill migration may lead to a lower tax burden and less redistribution than without migration, even though the migrants (naturally) join the pro-tax cum transfer coalition.